Finance Roll

If you think your job may be at risk, it's a good idea to shore up your finances and make sure you're not spending money unnecessarily. Don't assume you'll receive severance if you're laid off; you may not.

The general rule of thumb is that it takes one month for every $10k in salary to find a job (in a weak economy, assume it will take even longer); even with a cushion from severance, it's certainly possible to run out of money before securing your next position.

Take a look at your savings, debt, and monthly expenses. Minimize wherever possible. Skip the daily latte at the coffee shop, and wash the car by hand. Eat meals at home. Put the money you save on expenses into savings.

You should try to have six months of cash in reserve and available at all times. This is another one of those things that you should do as a matter of course. Strange things can happen - and they can happen very quickly. A small technology company ran into financial trouble and was abruptly forced to sell. (Underscore abruptly!) It was less than one month from the day this turn of events was announced until the first employees were let go. The company shut its doors for good just five weeks after that. If these folks didn't have six weeks of cash on hand, they likely weren't going to come up with it in the space of a few weeks.

Avoid dipping into your retirement account for living expenses. This should be a strategy of last resort. Between early withdrawal penalties and state and Federal taxes, you could lose a great deal of money. Of course, you'll also be sacrificing your long-term security.

Alternate options if you need cash:

• Savings accounts
• Money market funds
• Home equity loans (not so easy to secure currently, but still worth a look)

Not only can you get relatively low interest rates, the payments are often tax deductible. However, you should set up an equity line of credit while you are still employed.

While we're on the subject of retirement accounts, if you have a 401(k) with your current company, roll those funds into an IRA to avoid paying a tax penalty. A direct rollover is the best option: in this case, the money goes straight from your former company's account to your IRA without you touching it. It's simple, and you continue to receive tax deferred status on the full amount of money accrued.